Real Estate Owned
Real estate owned, or REO, is a term used in the United States to describe a class of property owned by a lender-typically a bank, government agency, or government loan insurer-after an unsuccessful sale at a foreclosure auction. A foreclosing beneficiary will typically set the opening bid at a foreclosure auction for at least the outstanding loan amount. This is commonly the case when the amount owed on the home is higher than the current market value of the foreclosure property, such as with a mortgage loan made at a high loan-to-value during a real estate bubble. If there are no bidders that are interested, then the beneficiary will legally repossess the property.
REO insurance differs from “forced placed” insurance (also “lender placed” insurance), which a lender purchases for borrower-owned property when the borrower does not insure the property. On the other hand, banks or lenders sell or open their assets in group for auction at a very low price compared to their market value. Bulk REO or bulk real estate owned, from a real estate investor’s point of view, is like investing on wholesale real estate properties. Comptroller’s Handbook: A-OREO (PDF).
In balance sheet terms, OREO assets are considered non-earning assets for purposes of regulatory accounting. Based on the amount of equity that is determined from the BPO, the bank will decide whether to allow a short sale (if requested by the homeowner). As soon as a property goes into a distressed status (the borrower/home owner misses mortgage payments) the beneficiary will want to determine the amount of equity that the property has. In the context of national banks in the U.S., the term OREO is legally defined by the Office of the Comptroller of the Currency in regulations promulgated pursuant to 12 U.S.C. A popular method to determine the equity is to obtain a Broker’s Price Opinion (BPO) or order an appraisal.
Office of the Comptroller of the Currency. Kollen-Rice, Melissa (2008). Buying Real Estate Foreclosures (3rd ed.). Whitney, Russ (2003). Millionaire Real Estate Mentor. Text is available under the Creative Commons Attribution-ShareAlike License 3.0; additional terms may apply. By using this site, you agree to the Terms of Use and Privacy Policy. Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc., a non-profit organization. This page was last edited on 19 January 2023, at 11:29 (UTC).
